European defense companies such as Thales and Rheinmetall are reporting a surge in orders as military budgets grow. Here are some companies that stand to benefit from geopolitical uncertainty:
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Europe's largest defense and aerospace companies are experiencing record order and cash flow levels amid a surge in government orders for new weapons.
These include Germany's Rheinmetall, Britain's BAE Systems, France's Thales and Sweden's Saab.
The increase in orders is believed to be largely due to growing geopolitical uncertainty, given the ongoing war between Russia and Ukraine and the conflict between Israel and Hamas.
As a result, government military budgets are growing and so are orders to defense contractors.
The European Defence Agency has a general budget of more than 48 billion euros up to 2024.
This excess cash has led companies to allocate more funds to stock buybacks and dividends, and forecasters expect more mergers and acquisitions to come.
Thales reports 26% increase in order levels
French electrical systems and defense company Thales recently announced that its orders rose 26% to €10.8 billion in the first half of the year, bringing its total order book to a record €47 billion.
Earnings before interest and taxes (EBIT) for the first half of 2024 increased 10.4% to EUR 1.096 billion, while sales increased 8.9% to EUR 9.5 billion.
Rheinmetall Announces Major Order from NATO Customer
Earlier this May, German arms manufacturer Rheinmetall also announced that a NATO customer had placed a bulk order for tens of thousands of shells.
The order, due for delivery between this year and 2028, also includes hundreds of thousands of propellant-filled modules for use in a range of weapons.
The company's order book in the second quarter of this year reached nearly 300 million euros.
The company's increased orders come as the war between Russia and Ukraine continues, with various militaries replacing their ammunition stockpiles.
BAE Systems raises sales outlook as orders grow
British aerospace and defense company BAE Systems is also benefiting from rising orders, having recently reported half-year profits and raised its sales outlook.
Orders increased by £1.6 billion (€1.89 billion) in the first half of the year, reaching a total of £59.6 billion (€70.34 billion) as of June 30.
BAE Systems now expects full-year 2024 sales growth to be between 12% and 14%, up from its previously announced guidance of 10% to 12%.
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This was driven by continued strong performance across all divisions.
BAE Systems also raised its underlying earnings before interest and tax (EBIT) guidance to a range of 12-14 percent from 11-13 percent.
The company announced that sales in the first half of the year rose 13% to around £13.4 million (€15.82 billion).
BAE Systems chief executive Charles Woodburn said at the company's half-year results: “Our order volumes demonstrate that demand for our products and services remains strong and we are well positioned for sustained growth over the coming years.”
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“We continue to invest in new technology, facilities and talent to meet our record backlog and help our government customers stay ahead in an uncertain world.”
Saab wins €35 million order for combat boat
Swedish defense company Saab also recently announced an order for 10 naval combat boats from the Swedish Defence Materiel Administration.
The order is valued at 400 million Swedish kronor (SEK, €35.04 million) and the contract is due to start later this year.
Deliveries are expected to continue over the next few years.
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The purchase symbolizes Sweden's stepped up efforts to bolster its naval defence, particularly in light of the uncertain geopolitical situation in Europe.
“Saab recorded strong order intake of 40 billion Swedish kronor (3.51 billion euros) during the quarter, the second highest quarter in the company's history. Our portfolio is uniquely positioned and we are strengthening our market presence,” Saab President and CEO Mikael Johansson said in a press release about the company's second-quarter results.
“We also continue to increase investment in additional capacity and are committed to securing capacity and growing our workforce.”
The company also saw its sales increase by 22% in the second quarter of this year, driven by continued growth across all segments. Earnings before interest and taxes also increased by 25%.
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Other major U.S. defense companies, including Lockheed Martin, Northrop Grumman, General Dynamics and RTX, are also expected to benefit from increased government orders.
